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Diplomacy in Action

Bermuda (08/02)


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For the most current version of this Note, see Background Notes A-Z.

PROFILE

OFFICIAL NAME:
Bermuda

Geography
Area: 58.8 sq. km. (22.7 sq. mi.).
Cities: Capital--Hamilton (pop. 1,100). Other city--St. George (pop. 1,650).
Terrain: Hilly islands.
Climate: Subtropical.

People
Nationality: Noun and adjective--Bermudian(s).
Population: 62,656.
Annual growth rate: 0.7%.
Ethnic groups: Black 61%, white and other 39%.
Religions: Non-Anglican Protestant 39%, Anglican 27%, Roman Catholic 15%, other 19%.
Language: English.
Education: Years compulsory--to age 16. There is no formal measure of literacy.
Health: Infant mortality rate--2.4 per thousand. Life expectancy--men 74.89 yrs., women 78.86 yrs.
Work force: Clerical--22%. Services--20%. Laborers--18%. Professional and technical--18%. Administrative and managerial--12%. Sales--8%. Agriculture and fishing--2%.

Government
Type: British Overseas Territory with significant autonomy.
Constitution: June 8, 1968; amended 1989.
Branches: Executive--British monarch (head of state, represented by a governor). Legislative--Senate (upper house), House of Assembly (lower house). Judicial--Supreme Court.
Subdivisions: Nine parishes.
Political parties: United Bermuda Party (UBP), Progressive Labor Party (PLP), National Liberal Party (NLP).
Suffrage: Universal at 18.

Economy
GDP: Estimated at $3.4 billion; 7% ($220 million) of GDP comes from tourism and 14% ($468 million) from international companies.
GDP growth rate: 3.8%. (Real GDP is expected to contract by 1.5% in 2002)
Per capita GDP: $54,291.
Inflation rate: 2.9% (2001).
Natural resource: Limestone, used primarily for building.
Agriculture: Products--semitropical produce, dairy products, flowers.
Industry: Types--finance, insurance, structural concrete products, paints, perfumes, furniture.
Trade: Exports (includes re-exports)--$36.1 million: semitropical produce, light manufactures. Imports--$720 million: chemicals, food and live animals, machinery/transport, miscellaneous manufactures. Major suppliers--U.S. 74%, U.K. 5%, Canada 7%, Caribbean countries 3% (mostly oil from Netherlands Antilles).

U.S.-BERMUDIAN RELATIONS
Because Bermuda is a British overseas territory, U.S. policy toward the United Kingdom is the basis of U.S.-Bermudian relations. In the early 20th century, as modern transportation and communication systems developed, Bermuda became a popular destination for wealthy U.S., British, and Canadian tourists. In addition, the tariff enacted by the U.S. against its trading partners in 1930 cut off Bermuda's once-thriving agricultural export trade--primarily fresh vegetables to the United States--and helped spur the overseas territory to develop its tourist industry, which is second behind international business in terms of economic importance to the island.

During World War II, Bermuda became important as a military base because of its location in the Atlantic Ocean. In 1941, the United States signed a lend-lease agreement with the United Kingdom giving the British surplus U.S. Navy destroyers in exchange for 99-year lease rights to establish naval and air bases in Bermuda. The bases consisted of 5.8 square kilometers (2.25 sq. mi.) of land largely reclaimed from the sea. The U.S. Naval Air Station was on St. David's Island, while the U.S. Naval Air Station Annex was at the western end of the island in the Great Sound.

Effective September 1, 1995, both bases were closed, as were British and Canadian bases on the island. Unresolved issues concerning the 1995 withdrawal of U.S. forces-- primarily related to environmental factors--delayed the formal return of the base lands to the Government of Bermuda. The United States formally returned the base lands in 2002.

Bermuda collaborated with the U.S. in the wake of the September 11th terrorist attacks on New York and Washington, and has reassured the U.S. and the world that Bermuda offers neither physical nor financial hiding places for terrorism. The Bermuda Monetary Authority (BMA) searched its databases against a list of hundreds of names provided by the FBI, looking for any connection between the terrorists and companies that have incorporated in Bermuda. No connections were found. Promising Bermuda's full cooperation in any investigation, the BMA worked with the island's financial institutions looking for any such connections. Finally, the Bermuda Government placed the listed individuals on a watch list.

An estimated 7,500-8,000 U.S. citizens live in Bermuda, many of them employed in the international business community. There also are a large number of American businesses incorporated in Bermuda, although no actual figure has been made public. The fact that American businesses are increasingly moving to Bermuda or other offshore jurisdictions to escape U.S. taxation has come under given increasing scrutiny in the U.S. in early 2002. The Government of Bermuda maintains that the island is not a "tax haven," and that it taxes both local and foreign businesses equally.

U.S. visitors to Bermuda are very important to the island's tourism industry. However, the number of U.S. visitors to Bermuda is declining. Air arrivals from the U.S. declined by more than 30% between 1990 and 2000 and, in 2000, only 77.3% of air arrivals originated from the U.S. compared to 83.9% in 1990. The number of air and cruise passengers from the U.S. totaled 464,000 (excluding private ship, air, and yacht passengers) in 2000. That number fell to 390,000 American passengers in 2001 due to a general decline in tourism and the events of September 11.

In 2000, some 84% of Bermuda's imports came from the United States. Areas of opportunity for U.S. investment are principally in the re-insurance and financial services industries, although the former U.S. base lands also may present long-term investment opportunities.

Principal U.S. Officials
Consul General--Denis P. Coleman
DPO/Admin--Karen Emmerson
Consul/Consular Officer--Jennifer L. Schools

The U.S. consulate general is located at "Crown Hill," 16 Middle Road, Devonshire, just outside Hamilton; tel: 441-295-1342; fax: 441-295-1592.

HISTORICAL HIGHLIGHTS
Bermuda is an archipelago consisting of seven main islands and many smaller islands and islets lying about 1,050 kilometers (650 mi.) east of North Carolina. The main islands--with hilly terrain and subtropical climate--are clustered together and connected by bridges; they are considered to be a geographic unit and are referred to as the Island of Bermuda.

Bermuda was discovered in 1503 by a Spanish explorer, Juan de Bermudez, who made no attempt to land because of the treacherous reef surrounding the uninhabited islands. In 1609, a group of British colonists led by Sir George Somers was shipwrecked and stranded on the islands for 10 months.

Their reports aroused great interest about the islands in England, and in 1612 King James extended the Charter of the Virginia Company to include them. Later that year, about 60 British colonists arrived and founded the town of St. George, the oldest continuously inhabited English-speaking settlement in the Western Hemisphere. Representative government was introduced to Bermuda in 1620, and it became a self-governing colony.

Due to the islands' isolation, for many years Bermuda remained an outpost of 17th-century British civilization, with an economy based on the use of the islands' cedar trees for shipbuilding and the salt trade. Hamilton, a centrally located port founded in 1790, became the seat of government in 1815.

Slaves from Africa were brought to Bermuda soon after the colony was established. The slave trade was outlawed in Bermuda in 1807, and all slaves were freed in 1834. Today, about 60% of Bermudians are of African descent.

In the early 20th century, Bermuda's tourism industry began to develop and thrive; Bermuda has prospered economically since World War II. Internal self-government was bolstered by the establishment of a formal constitution in 1968; debate about independence has ensued, although a 1995 independence referendum was defeated.

ECONOMY
Bermuda has enjoyed steady economic prosperity since the end of World War II, although the island experienced a mild recession in 2001-02, paralleling the recession in the United States. Bermuda enjoys one of the highest per capita incomes in the world. Its economy is based primarily upon international business and tourism, with those two sectors accounting for more than 70% of the total balance of payments current account receipts of foreign exchange. However, the role of international business in the economy is expanding, whereas that of tourism is contracting.

Bermuda is considered an offshore financial center, and it has a well-deserved reputation for the integrity of its financial regulatory system. A recent KPMG report entitled "Review of Financial Regulation in the Caribbean Overseas Territories and Bermuda" states that the island's legislative framework is almost fully compliant with international standards, giving evidence of Bermuda's commitment to the prevention of money laundering and other financial crimes.

Aiming to meet or exceed international financial standards, the Bermuda Monetary Authority (BMA) has taken a clear decision to be fairly transparent about its duties and responsibilities. For example, in response to the KPMG October 2000 report on the UK's Caribbean overseas territories, Bermuda enacted the Trust (Regulation of Trust Business) Act 2001. The legislation provides for the transfer of the finance minister's responsibilities to the independent BMA, with respect to granting and revoking trust company licenses. It also requires all individuals or companies operating trust companies to have a license unless they are exempt. Previously, only trust companies needed a license. Additionally, the legislation gives the BMA more comprehensive intervention powers. It will be able to request more detailed documentation and, in the event of a problem, restrict a trust operator's license. Information will be kept confidential, except in the event of a criminal investigation.

Comprehensive new legislation will be introduced in the upcoming parliamentary session to further streamline the incorporation process, facilitate registration of foreign names and address conflicts in law for registered securities, again consistent with the KPMG report. Amendments are being proposed to the BMA (Collective Investment Scheme Classification) Regulations 1998, part of a strategic plan for the development of financial services in Bermuda. It is a mark of Bermuda's commitment that each financial sector is seen to be in line with international standards.

The effects of September 11 have had both positive and negative ramifications for Bermuda. On the positive side, a number of new re-insurance companies have located on the island, contributing to an already robust international business sector. On the negative side, Bermuda's already weakening tourism industry has been hard hit as American tourists have chosen not to travel.

There are more than 12,500 foreign companies in Bermuda, many U.S.-owned. They are an important source of foreign exchange for the island. International companies spent $967 million in Bermuda in 2000. Total income, including secondary effects, was $1,292 million.

The growing importance of international business is reflected in its increased share of GDP, which grew from 12.6% in 1996 to 13.8% in 2000. In 2000, international companies directly employed 3,224 Bermudians and non-Bermudians. International companies directly and indirectly support 9,450 jobs in Bermuda and strongly influence a further 4,670.

Tourism is Bermuda's second most important industry. That it is an industry in trouble is evident from the statistical comparison. In 1996, Bermuda welcomed 571,700 visitors to the island. By 2000, that figure has dropped to 538,059 visitors, and further decreased to 454,444 visitors in 2001. Bed nights sold declined from over 2.4 million in 1995 to 1.9 million in 2001. Visitors contributed an estimated $475 million to the economy in 1996, but that figure declined to $431 million in 2000. Direct employment in the tourism industry (5,700 jobs in 2000) and related industry is dropping in tandem with declining visitor numbers.

Total filled jobs in 2000 were 38,017, but preliminary estimates for 2001 reveal a 1.1% decline in employment. Nevertheless, unemployment remains in the 4% range, and many Bermudians hold more than one job. In 2000, about 25% of workers were union members. There are three primary unions in Bermuda: the blue-collar Bermuda Industrial Union, Bermuda's largest labor organization; the professional Bermuda Public Services Union, with a steadily increasing membership; and the Bermuda Union of Teachers.

Organized labor enjoys a high profile in Bermuda. Union action, however, was moderate in recent years. The average days lost per worker involved have dropped from a high of 65 in 1991 to a low of 0.8 in 1999. Although still active, unions have tempered their demands, partly as a result of new labor legislation and partly in recognition that Bermuda's economy, in line with that of the United States, entered a recessionary phase in 2001. The island's tourism industry, in which many Bermudians have historically been employed, continues to experience tough times, made even worse by September 11. Past industrial action in the tourism sector hurt that industry, which was already suffering a chronic downturn without the additional blow of tourist displeasure and displacement due to work stoppages.

Bermuda has little in the way of exports or manufacturing, and almost all manufactured goods and foodstuffs must be imported. The value of imports continues to rise, up from $551 million in 1994 to $712 million in 1999. The U.S. is Bermuda's primary trading partner; from a value of $400 million in 1994, U.S. imports expanded to $533 million in 2000. The United Kingdom, Canada, and the Caribbean countries (mainly the Netherlands Antilles) also are important trading partners. Exports from Bermuda, including imports into the small free port, which are subsequently re-exported, increased from $35 million in 1993 to almost $51 million in 1999.

Duty on imports is a major source of revenue for the Government of Bermuda. In fiscal year 1998-99, the government obtained slightly more than $166 million, or about 30% of its revenue base from imports. Heavy importation duties are reflected in retail prices. Even though import duties are high, wages have kept up with the cost of living, and poverty--by U.S. standards--appears to be practically nonexistent. Although Bermuda imposes no income, sales, or profit taxes, it does levy a real estate tax.

Bermuda is home to immigrants from other countries. Although the census information for 2000 is not yet available, 1991 census data reveal that UK immigrants constituted 30.6% of the immigrant population; U.S., 19.9%; Canada, 10.5%; and Portugal and the Azores, 13.5%. Of the total 1991 population, about 73% were born in Bermuda and 27% were foreign-born.

In February 1970, Bermuda converted from its former currency, the pound, to a decimal currency of dollars pegged to the U.S. dollar.

Bermuda has 150 miles of private paved roads; 130 miles of public paved roads; 25 miles of historic, unpaved railroad trail, used as scenic trails; three ports, including the former U.S. Naval Air Station and Naval Air Station Annex; and one airport, located at the former U.S. Naval Air Station. It has seven radio stations, three television stations, a small cable microwave system, three cellular services, three submarine cables, two satellite earth stations, and four Internet service providers.

GOVERNMENT AND POLITICAL CONDITIONS
Bermuda is the oldest self-governing overseas territory in the British Commonwealth and has a great degree of internal autonomy. Its 1968 constitution provided the island with formal responsibility for internal self-government, while the British Government retained responsibility for external affairs, defense, and security. The Bermudian Government is always consulted on any international negotiations affecting the territory. Bermuda participates, through British delegations, in the UN and some of its specialized and related agencies.

Government Structure
Queen Elizabeth II is head of state and is represented in Bermuda by a governor, whom she appoints. Internally, Bermuda has a parliamentary system of government.

The premier is head of government and leader of the majority party in the House of Assembly. The cabinet is composed of 14 members selected by the premier from among members of the House of Assembly and the Senate.

The 40-member House is elected from 20 electoral districts (two representatives from each district) for a term not to exceed 5 ears. The Senate, or reviewing house, serves concurrently with the House and has 11 members--five appointed by the governor in consultation with the premier, three by the opposition leader, and three at the governor's discretion.

The judiciary is composed of a chief justice and associate judges appointed by the governor. For administrative purposes, Bermuda is divided into nine parishes, with Hamilton and St. George considered autonomous corporations.

Political Conditions
Bermuda's first political party, the Progressive Labor Party (PLP), was formed in May 1963 with predominantly black adherents. In 1965, the two-party system was launched with the formation of the United Bermuda Party (UBP), which had the support of the majority of white voters and of some blacks. A third party, the Bermuda Democratic Party (BDP), was formed in the summer of 1967 with a splinter group from the PLP as a nucleus; it disbanded in 1970. It was later replaced by the National Liberal Party (NLP) which currently holds no parliamentary seats.

Bermuda's first election held on the basis of universal adult suffrage and equal voting took place on May 22, 1968; previously, the franchise had been limited to property owners. In the 1968 election, the UBP won 30 House of Assembly seats, while the PLP won 10 and the BDP lost the three seats it had previously held. The UBP continued to maintain control of the government, although by decreasing margins in the Assembly, until 1998 when the PLP won the general election for the first time.

Unsatisfied aspirations, particularly among young blacks, led to a brief civil disturbance in December 1977, following the execution of two men found guilty of the 1972-73 assassinations of Governor Sir Richard Sharples and four others. In the 1980s, the increasing prosperity of Bermudians, combined with limited land area, caused severe pressure in housing. Despite a general strike in 1981 and poor economic conditions worldwide during 1981-83, Bermuda's social, political, and economic institutions showed resilience and stability.

Bermuda's positive experience with internal self-government has led to discussions of possible complete independence by both parties. However, an independence referendum called by a sharply divided UBP in the summer of 1995 was resoundingly defeated and resulted in the resignation of the premier and UBP leader, Sir John Swan. Just over 58% of the electorate voted in the independence referendum, which had to be postponed one day due to disruptions caused by Hurricane Felix. Of those voting, over 73% oted against independence, while only 25% voted in favor. The vote may not have been a true test of support for independence, however, as the Progressive Labor Party (PLP) urged its membership to boycott the referendum.

That the PLP would boycott the independence referendum was out of character. Independence has been a plank in the platform of the PLP since the party's inception in 1963. Their 1968 platform promised, in fact, that, "No government can be either responsible or democratic while under the rule of another country. Colonialism is a cancer....Therefore we shall return to London to examine with the British Government what arrangements can be made for our independence." Bermuda's constitutional framework preparatory to Bermuda's "inevitable independence."

It was ironic, therefore, that independence was absent from the PLP's 1998 general election platform, when the PLP first triumphed at the polls. In fact, Premier Jennifer Smith stated that she would not pursue independence during her first term. Again, in 2001, she made the following statement: "As I have stated repeatedly, consistently and unequivocally since assuming the leadership of the Bermuda Progressive Labor Party, I shall state once again for the record-independence is not an issue that we will address in our first term and probably not in our second term....We believe that there are a number of areas that need addressing before Bermuda heads down this road."

Under the leadership of Jennifer Smith, the Government of Bermuda began to systematically address the issues that it believes are fundamental prerequisites for independence. It very quickly enacted legislation providing for voter registration every 5 years instead of annually. Then in 2001, the government began taking steps to amend Bermuda's constitution in order to abolish the island's system of parish-based, dual-seat constituencies which favors voters in parishes of small, predominantly white populations. The British Foreign and Commonwealth Office (FCO) prepared an Order in Council empowering the Constituency Boundaries Commission to recommend to the governor the number and boundaries of single-member constituencies into which Bermuda should be divided. The Commission has in fact been meeting with the public and will soon conclude its deliberations. The governor will then submit the commission's report to the U.K. secretary of state, together with the views of the House of Assembly. Finally, the FCO will prepare a second Order in Council for presentation to the Privy Council to effect the proposals made by the commission, including constitutional amendments relating to electoral boundaries and representation.

The possibility of independence has relevance to newly enacted U.K. legislation entitling citizens of Britain's overseas territories, including Bermuda, to British citizenship. The British Overseas Territories Bill, passed in February 2002, provides automatic acquisition of British citizenship, including automatic transmission of citizenship to their children; the right of abode, including the right to live and work in the U.K. and the EU; the right not to exercise or to formally renounce British citizenship; and the right to use the fast track EU/EEA channel at the airport, free of U.K. immigration controls.

A poll conducted by the Bermuda Sun, a local semiweekly newspaper, reveals support for British citizenship. The March 2002 poll revealed that of the 356 persons surveyed, 66.9% were interested in accepting British citizenship, and only 18% said that they would refuse it. There are no conditions attached to the grant of British citizenship to the OTs, a fact of particular importance to Bermuda where the issue of independence lies dormant. The white paper specifically states, "The new grant of British citizenship will not be a barrier, therefore, to those Overseas Territories choosing to become independent of Britain....Our Overseas Territories are British for as long as they wish to remain British. Britain has willingly granted independence where it has been requested; and we will continue to do so where this is an option."

Principal Government Officials
Head of State--Queen Elizabeth II
Governor--Sir John Vereker
Premier--Jennifer Smith

Bermuda's interests in the United States are represented by the United Kingdom, whose embassy is at 3100 Massachusetts Avenue, NW, Washington, DC 20008; tel: 202-588-6500; fax: 202-588-7870.

The Bermudian Government's Department of Tourism has offices in New York, Atlanta, Chicago, and Boston.



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